February 2011

6

Magic Formula Investing (MFI), as described by hedge fund manager Joel Greenblatt in The Little Book that Beats the Market, consists of ranking stocks by earnings yield (cheap) and return on capital (quality), adding the rankings together, and buying from the resulting lists. Below are stocks that have moved into, and dropped out of, 3 of the MFI screens used by MagicDiligence: [more]

Recs

7

Joseph Piotroski is an former accounting professor at the University of Chicago, and an active value-based investor. He noticed when reviewing stocks with very low price-to-book value that many of them were in poor financial shape, unlikely to survive and deserving of their low valuation. Piotroski set out to devise a system to take these low price-to-book stock lists and mechanically filter out the ones that were unlikely to survive and prosper, leaving a number of potentially attractive investment opportunities.

Piotroski's method is very simple. A stock is scored by 9 different, and very simple, criteria that measure the company's performance between the past 2 years. The stock gets a '1' for each test it passes, and a '0' for each test it does not. If both years show identical values, a '0.5' can be awarded. At the end, all of the scores are added up to come up with the Piotroski score. In this scale, a '9' is a perfect score, passing all tests. '8' (and '8.5') are excellent scores worthy of consideration. Back-testing has found that choosing stocks with low valuations and Piotroski scores of 8 or 9 vastly outperforms the market. [more]

Recs

6

Just a few years ago, Garmin (GRMN) was a popular stock with the growth investing set. Today, with an 14.6% earnings yield (8.9 P/E) and a place in the Magic Formula Investing (MFI) screen, the company is firmly in value stock territory. What happened to bring this rocket stock back to earth, and have investors overreacted?

For those unfamiliar, Garmin is one of the leading manufacturers of global positioning system (GPS) devices worldwide. The company sells products in 4 segments. The largest is Automotive/Mobile, contributing about 60% of revenue and 38% of operating profits. The Automotive side consists of mounted or in-dash navigation and multi-function devices for vehicles, often factory-installed by manufacturers. The Mobile side is mainly Garmin's line of "nuvi" branded handheld personal navigation devices (PNDs). [more]

Recs

4

Have you ever wondered how your picks have fared against Magic Formula Investing (MFI)? Ever wondered how MFI had performed against the market? Interested to find out the MFI stocks that have doubled, even tripled, over a one year holding period? Do you have a project in mind to back-test MFI results?

The most difficult part about doing these things has been finding the Magic Formula stocks for a given date! But now, you can, with MagicDiligence's Historical Magic Formula Screen tool! [more]

Recs

4

Magic Formula Investing (MFI), as described by hedge fund manager Joel Greenblatt in The Little Book that Beats the Market, consists of ranking stocks by earnings yield (cheap) and return on capital (quality), adding the rankings together, and buying from the resulting lists. Below are stocks that have moved into, and dropped out of, 3 of the MFI screens used by MagicDiligence: [more]

7

Suppose you agreed to sell someone your used car for $5,000. Would you prefer the buyer pay you with an IOU, or in cold, hard cash?

The answer is simple, right? You can take those greenbacks to go make a down payment on your new vehicle, or buy a new Magic Formula stock, or take a Caribbean vacation, or whatever. You can take the IOU and... write your grocery list on it, maybe? The fact is, until a payment is liquid, it is not of much use in furthering your cause. [more]

Recs

4

Magic Formula Investing (MFI), as described by hedge fund manager Joel Greenblatt in The Little Book that Beats the Market, consists of ranking stocks by earnings yield (cheap) and return on capital (quality), adding the rankings together, and buying from the resulting lists. Below are stocks that have moved into, and dropped out of, 3 of the MFI screens used by MagicDiligence. Note that in earnings season (that is, now) there is often a lot of turnover in the screens, some of which is temporary. [more]

Recs

9

Altria Group (MO) consists of a number of entities, namely Philip Morris USA, U.S. Smokeless Tobacco Company, John Middleton, Ste. Michell Wine Estates, and Philip Morris Capital Corporation. The company also owns a 27.3% interest in the world's second-largest brewer, SABMiller. Altria has been transformed over the past 5 years, spinning off packaged foods maker Kraft (KFT) in 2007 and then Philip Morris International (PM), the international cigarette business, in 2008. On the other hand, the firm acquired UST, the largest domestic maker of smokeless tobacco, in 2009, and John Middleton, which sells machine-made cigar brand Black & Mild, in 2007.

Today, Altria is largely leveraged to the domestic U.S. market for cigarettes. Fortunately, this is a market the firm absolutely dominates, with about 50% market share. Marlboro is by far the best selling brand in the U.S., accounting for about 42% of all packs of cigarettes sold. Other well-known brands include Virginia Slims and Parliament. [more]